Reserve Bank of India, Mumbai
THE INDIAN rupee today hit a record low against the dollar, as fears about eurozone debt and the global economy as well as falling local stock markets provoked further selling of the currency.
The rupee plunged to 52.50 against the greenback as foreign exchange markets opened, causing further problems for the Indian central bank as it tries to rein in near double-digit inflation.
The weakening rupee is expected to fuel domestic inflation because oil imports priced in dollars will become more expensive, translating into higher prices for local consumers and businesses.
“It (the weakening rupee) is disruptive, there is no question,” the deputy governor of the Reserve Bank of India (RBI), Subir Gokarn, told reporters in Mumbai.
“There will be an impact on our import bill, particular for energy. It’s having an impact on companies and it is a problem.”
Gokarn, forex dealers and analysts said however that the fall matched market trends, as investors flee riskier emerging market and eurozone assets, pushing up demand for the dollar, which is seen as a safe haven in times of crisis.
Dealers added that the rupee’s fall had been exacerbated by the finance ministry’s comments yesterday that the Reserve Bank of India had only a “limited” ability to arrest the partially convertible currency’s slide.
Media reports and analysts said the RBI had intervened for the first time in more than two months to try to quell the decline of the rupee, which has tumbled by about four per cent against the dollar in the past six trading days.
“There`s no official confirmation but people think that’s the case,” said economist Siddartha Sanyal, from Barclays Capital.
“At this moment, the dynamics seem to be pretty much against all emerging market currencies and that’s not really helping the rupee,” he told reporters.
The RBI’s Gokarn said the bank had no target level for the currency, although he admitted the weakening rupee could have an immediate impact on inflation.
“Any action we take now, if any, has to take into account the fact that these actions might have consequences a little further down the road,” he added.
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